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Thirty days have November, April, June, and September. February has 28 alone, and all the rest have 31. Except January, which has 74.

With the first (and what seemed the longest) month of 2018 behind us, it’s time to relook those new year’s resolutions that some may have already given up on.

Whether you decided that gym isn’t as thrilling as you had hoped it would be, or that learning Italian isn’t going to help you too much living in Oudtshoorn or Vereeniging, one resolution you can bet will help you this year is becoming financially literate.

What may seem like a daunting topic with fancy words and complex calculations, made purposefully to stop the average person from asking “what does that mean?”, can be made to be understood when it’s broken down into simple language which is what I hope to achieve with these articles going forward.

As we know, money is not a topic many people enjoy talking about, especially when it is their own.

(During a client engagement meeting)

Me: Morning Mr Client. Tell me, what investments do you currently have?

Client: Well, I have unit trusts at Discovery and Liberty.

Me: Ok, perfect. In what funds are they currently invested? A balance fund, I assume?

Client: No no… as I said, they’re in unit trusts.

Me: That’s great, but in what actual funds are you invested?

The client gave me a blank stare and I soon realised that the client, like many others, did not know the difference between being invested in a financial product and a fund.

Too often, many of us are getting phoned by salespeople trying to sell us something only for them to earn a fat commission. Often, we’re not exactly sure what it is, but we buy into it anyway.

The same applies in the financial industry. Salespeople trying to sell unit trusts, retirement annuities, endowments, living annuities etc. without proper consultations with the client and with very little regard to whether they need this product or not.

But what is the difference between a product and a fund? For this explanation, I want you to completely forget about anything you think you know about investments, because that may confuse you more, and all you must think about are cars and petrol. Very simple. As you know, you get fast cars, new cars, slow cars, big cars, small cars.

Every car has a purpose for their respective owners. Someone who plans to trek across Africa is more likely to buy a Land Rover over a Chevy Spark. A family with 3 young children is more likely to buy a car with space for bags and sports equipment, like a Kombi over a Mini Cooper. Every car must be suited and tailored for the purpose that the buyer needs. The same goes for financial products. Every product is unique and serves a different purpose.

Just because one product may be perfect for someone who has just started working and is fully-independent for the first time in his/her life, doesn’t mean the same product should be used by someone who is 10 years into retirement (remember the different-cars-for-different-people story).

Each financial product comes with different rules and regulations suited for investors and it is best that your advisor explains what these are in order for you, the client, to have peace of mind.

Your car however, will not drive without petrol. It will just sit there not doing anything, not going anywhere you want to go. In order to fuel your car to take you forward, you fill it up with petrol. Funds are the petrol of the finance world. They are what drive your product to get where you want to be.

Someone who lives 2km’s from work isn’t going to need to put in as much petrol as someone who lives 20km’s from work. The same can be said about funds. Every fund has a risk profile and benchmark strategy attached to it, and this will determine how far you can get. Take the person who lives 2km’s from work: he doesn’t need to travel very far and so he most likely does not need more petrol than the person who lives 20km’s away.

Translated to investing, a person may not need to take as much risk as another person to get to where they need to be. Some funds are riskier than others (depending on what assets they hold) and aim to get a higher return than others. There are thousands of funds out there, it is up to the client and the advisor to discuss which funds are best suited for each client based on the risk profile of that client.

In summary; there are different financial products/vehicles (the car) which are fuelled by funds (the petrol). The two go hand-in-hand in order for a client to reach their goals and objectives (the destination). These shouldn’t simply be sold to you, but instead discussed with a qualified advisor who will help guide and coach you through everything.

More details about the different types of products and fund assets will be discussed at a later stage, but right now it’s more important to be able to differentiate the two.

As the title suggests, these articles are catered for the people who need the guidance of an advisor or planner to help secure a better life in the future. It is of the utmost importance that when clients invest, they are as knowledgeable as possible about what they are investing into.

Clients must ensure that the advisor that they are consulting with is properly qualified to give the best advice and that the advisor has the best interest of the client at heart.